Flexible Spending Account FSA

A Flexible Spending Account (FSA) is an employer-sponsored, tax-advantaged benefit plan that lets employees set aside pre-tax dollars to pay for eligible healthcare or dependent care expenses. Employees reduce their taxable income by contributing to the FSA, then submit receipts for reimbursement. For example: an employee earning $80k/year contributes $2,500 to a healthcare FSA. Taxable income drops to $77,500, saving ~$650 in federal/state taxes. The employee then uses the FSA to pay for medical bills, dental work, or vision care throughout the year. Unlike taxable income, FSA contributions are never subject to income tax.